documents include:
i. Memorandum of association ii. Articles of association
iii. Names of the company directors, and iv. Letter of undertaking.
The memorandum of association will include:
· The relationship of the company with outside world
· Name of the company
· The business address
· Objectives of the company
· The nature of the shareholders‟ liabilities
· The amount and type of shareholders‟ capital, etc.
The articles of association give the rules and regulations guiding the operation of the company.
The document provides information on the following areas:
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· The duties, rights and position of each member of the company
· Method of the appointment of directors
· The rights and powers of the directors
· How dividend are to be shared
· How general meetings are to be held
· Method of electing directors
· Voting rights of shareholders during elections
· Method of auditing the account of the company
B. The second step after the preparation and submission of the documents to the registrars of companies involved preparation of certificate of incorporation. If the registrar is satisfied that the business has met the necessary requirements for company formation, the registrar will then send a certificate of incorporation. The certificate of incorporation shows that the business has been recognized as a legal entity.
C. The third step is the submission of the company prospectus to the registrar of companies. The prospectus shows how the company has raised or wants to raise its capital.
D. The last step is the preparation of certificate of trading by the registrar of companies. The business can start functioning as soon as they receive trading certificate from the registrar of companies. All these legal procedures are necessary in order to protect the interested
shareholders from being defrauded by a group of dubious people.
3.4 Advantages of Limited Liability Company
1. Legal Entity: The business has a separate legal entity and as a result, it is distinct from the owners. It can therefore, sue and be sued in its own right.
2. Limited Liability: In the event of business failure, the maximum amount a shareholder can lose is the amount of capital he has contributed to the business. His personal assets are protected by law.
3. Large Capital: The business has large resources of capital nbecause of the large number of shareholders in the company. The company also finds it easy to borrow money because of its many assets which can be used as collateral.
4. Sure of Continuity: There is continuity of the business on the death or illness of a
shareholder. The misfortunes of a shareholder do not affect the existence of the company and its operations.
5. Transfer of Capital: The shares of a public Limited Liability Company are easily transferable for cash. This form of business ownership has the advantage of allowing the shareholders to transfer their capital at will if they feel dissatisfied with the company.
6. Specialisation is Possible: Division of labour is possible under this system of business ownership. Due to large number of people involved in running the business, the organisation is divided into various Departments. This leads to greater efficiency.
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7. Risks Reduction among Owners: The business risks are shared among a large number of persons. The wider spread of risks results in reduced loss for each shareholder, in the event of business failure.
.5 Disadvantages of Limited Liability Company
a. Difficult to Establish: Due to Government interest in this type of business organisation, the formalities for its establishment are usually very complicated. A number of requirements must be fulfilled before the business is registered as a company.
b. Required Large Amount of Capital: Apart from the formalities required, to establish the business, company also required huge amount of capital to start the business.
c. Delay in Decision Making: There is delay in taking decisions because of the relatively large size of the business. Before any major policy change can be adopted by the manager, a meeting of shareholders or the board of directors has to be convened. All these may take quite a long time.
d. Lack of Privacy: It is required by law for the company to make public all the financial activities and operations of the business.
All vital documents and information concerning the business are also sent to the registrar of companies for inspection. At times, annual report of the company is published in the dailies.
e. Ownership is Separated from Management: Since the shareholders who are the owners of the business are separated from the management of the business, there may be a negative attitude among the managers towards the interest of the shareholders. The managers may embezzle the company‟s fund since the business is not their own.
f. Lack of Cordial Relationship between Employers andEmployees: Unlike single proprietorship and partnership, the size of this company makes cordial relationship with employers and customers/employees impossible. The shareholders may not know each other.
The owners may range into thousands and are scattered throughout the country.
g. Decrease in Personal Interest: The type of interest, zeal and enthusiasms found in a business owned and controlled by one man is lacking in a Limited Liability Company. This is because the ownership is separated from the management.
SELF ASSESSMENT EXERCISE
1. Differentiate between Limited Liability Company and partnership form of business ownership.
2. Describe the process involved in the formation of a Limited
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Liability Company.
4.0 CONCLUSION
In this unit, we have discussed the meaning of a Limited Liability Company. We also discovered the two types of Limited Liability Company. The characteristic features of corporate business were also highlighted. In this unit, we also further highlighted the advantages and disadvantages of Limited Liability Company.
5.0 SUMMARY
In this unit, we have learnt that:
· Corporate business is an association of individuals who agree to and jointly pool their capital together in order to establish and own a business.
·There are two types of Limited Liability Company – private Limited Liability Company and public Limited Liability Company.
· The characteristic features or Limited Liability Companies highlighted include: the number of shareholders, separate legal entity, limited liability, business continuity, there is board of directors, acquisition of capital and publication of accounts.
· There are four essential steps in the formation and establishment of a
Limited Liability Company – filing of documents with the registrar of companies, preparation of certificate of incorporation, submission of company‟s prospectus and preparation of certificate of trading.
· The important areas touched under the advantages of corporate business include: legal entity, limited liability, large capital, prospect of continuity, transfer of capital, possibility of
specialization and reduction in risks among owners.
· The major disadvantages highlighted include: difficult to establish, required large amount of capital, delay in decision making, lack of privacy, lack of cordial relationship between employer and employees, and decrease in personal interest.
6.0 TUTOR-MARKED ASSIGNMENT
1a.What is a Limited Liability Company?
b. Describe the characteristics of a Limited Liability Company.
2. List and discuss five advantages and five disadvantages of a Limited Liability Company.
7.0 REFERENCES/FURTHER READINGS
Adegeye A.J. and J.S. Dittoh (1985). Essentials of Agricultural Economics. Ibadan: Impact Publishers Nig. Ltd.
Anyaele J.U. (1990). Comprehensive Economics for Senior Secondary Schools. Lagos: Johnson Publishers Ltd.
Anyanwuocha R. A. E. (2001). Fundamentals of Economics for Senior Secondary Schools.
Onitsha: Africana – FEP Publishers Ltd.
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